SafePay Launches to Stop Online Credit Card Fraud Before it Happens

Toronto-based startup SafePay is officially launching today, providing merchants and online shoppers with a method for providing additional protection to web-based ecommerce transactions. Using SafePay’s system, customers sign up, download an app, and verify purchases at checkout via that app whenever an online purchase is made with a credit card they’ve registered.

When customers sign up and make a purchase with a SafePay-enabled vendor, they’ll receive a push notification via the official SafePay app (iOS for now, Android planned). The app will request that the customer confirm that the purchase is indeed their own, which will then advance the progress of the checkout process they’re going through on the web. If a cardholder isn’t the one making a purchase, they can simply refuse the transaction, thereby stopping fraud before it occurs.

Merchants also need to sign up in order to incorporate SafePay into their checkout system, meaning that SafePay will require a lot of buy-in on both sides of the ecommerce equation in order to take off, but CEO Mick Bhinder believes that the appeal of the product is universal.

“It’s truly a win-win situation for the merchants, the cardholders, the banks, the payment processing companies, the credit card companies,” Bhinder said in an interview. “But, in terms of the real stakeholders, it’s the online merchants and the cardholders who need this product above anyone else… If SafePay is saving a merchant from a potential loss from fraud which could range from a few hundred dollars to tens of thousands of dollars, and it’s going to take an extra three to four seconds, I’m pretty certain they’re going to say ‘Yes, we like this.'”

While major online retailers like Amazon and Apple have had great success due in large part to their extremely frictionless checkout processes (one-click payments and stored payment card information, for instance), they also have huge margins that help them cope with fraud loss. For everyone else, an ounce of prevention will likely result in significant gains in terms of risk protection.

Other payment verification systems exist, including solutions from credit card companies themselves, like Verified by Visa. But Bhinder says that SafePay’s advantage over those actually lies in its convenience; in other words, it actually involves less friction and hassle for customers than those solutions.

“Unlike Verified by Visa or MasterCard SecureCode where you have a ridiculous pop-up box where you’re asked to put in a username and password, and heaven-forbid if you ever forget that or have to go try to find what it is, our solution is out-of-band,” he said. “You sign up for the app, you download and register the app and that’s it.” Confirmations after that only require launching the app to confirm it’s you, Bhinder notes, rather than having to perform a login every time. As another bonus for users, SafePay only collects the first and last six digits of a user’s credit card number for use in its verification process, ensuring it never has all of a user’s information in one place.

The self-funded SafePay is free for cardholders to use, and will remain so. The startup intends to bring in revenue by charging merchants for the use of its services, a small annual fee (beginning at $240 per year, and ranging up depending on transaction volume) that Bhinder says is easily recouped should the service prevent even one incidence of fraud. Initially, Bhinder says the company is working with a number of merchants, including one major Canadian travel company he couldn’t disclose. Eventually, he’s hoping SafePay can work directly with banks to automatically send fraud incident notifications directly to card issuing institutions, helping to detect and monitor fraud in real-time.

Online fraud is a very real, consistent threat when it comes to online shopping. SafePay’s system makes sense, especially now that smartphones are essentially ubiquitous in developed countries, but the startup will still face challenges in getting enough businesses on board to help prove its usefulness to consumers.